Accountants have set in motion a process that could introduce minimum fees they can charge for advisory services offered to different categories of clients, setting businesses up for a possible escalation of the cost of compliance.
The Institute of Certified Public Accountants of Kenya (ICPAK) has written to the Competition Authority of Kenya (CAK) seeking to introduce minimum professional fees in new industry guidelines expected to come into force mid next year.
CAK’s director general Wang’ombe Kariuki acknowledged receiving proposals seeking to prescribe the minimum recommended fees for each category of services. The list of services included non-assurance, company audits, saccos, pension schemes and public benefit organisations.
ICPAK’s application is based on sections of the Competition Act that allows the fixing of industry-wide prices if there are compelling reasons of public policy to justify them. The accountants’ body argues that the move would eliminate rampant price undercutting in the industry.
It remains to be seen whether the regulator will accept the request that would put accountants on equal standing with lawyers who have set minimum fees for their services.
Accountants and their clients currently negotiate and agree on fees without any price guides. ICPAK argues that the status quo is bad for the professionals and their customers.
“The fees guideline is meant to avoid undercutting, which compromises the quality of services offered,” said ICPAK’s chief executive Patrick Ngumi, arguing that accountants are qualified professionals who go through similar training and should therefore offer clients the same quality of services across the board.
Dr Ngumi said the current opaque environment has, for instance, led to major discrepancies in the setting of audit fees.
ICPAK said details of the minimum rates were being finalised and would become clear in the coming months.
The fixing of minimum fees is, however, not expected to stop clients from paying more for assurance and non-assurance services, including ordinary audit, forensic audit, tax, management, human resources and management consultancy.
The accountants argue that clients will be free to pay a premium on the minimum fees if they feel they are getting more in terms of superior skills, brand or reputation of the audit firm.
Fees paid to external auditors are pegged on hourly rates and generally represent a multiple of parameters for compensation, including the skills and scope of work being done.
Senior partners with years of experience, therefore, cost more compared to fresh graduates.
Audit firms offer their current and prospective clients charge-out rates listing the fees expected to be paid for hiring individual auditors or consultants. But this has not prevented huge variations in actual fees charged by various audit firms.
If the proposal to fix minimum fees is accepted, the small audit firms are expected to be the biggest beneficiaries of the price floor.
“Small firms get squeezed. The minimum fees will help them,” said Sammy Onyango, the CEO of Deloitte East Africa, adding that the lack of a price guide has encouraged some companies to play audit firms against each other in search for the lowest bidder. This has sparked a race to the bottom that has hurt the quality of work done.
The minimum fees come at a time when new laws and business realities have entrenched the use of external and internal auditors, setting the stage for an earnings bonanza for accountants whose typical monthly compensation are way above the national average.
The new Companies Act requires all companies to have audited accounts except dormant firms and those whose annual turnover stands below Sh720 million.
Companies with net assets below Sh620 million are also exempted as are non-profit firms.
Publicly-traded firms – which incur some of the highest audit fees – are required to have both internal and external auditors.
Dr Ngumi said that besides the legal requirements, demand for audit services has been rising due to its benefits to companies.
“Companies are realising that audited accounts give them an edge when bidding for government tenders or raising funds from debt and equity investors,” he said.
For accountants, their fees depend on the complexity of the client’s operations and man-hours needed to complete a task. A company like Safaricom, for instance, will pay more to external auditors compared to a property firm, according to accountants.
This is because the telco has several revenue streams including data and voice that come in various dynamic packages such as prepaid, post-paid and special limited offers.
An audit of a property company is relatively easier, especially if it has already hired a valuer of its land and buildings that make up most of its assets.
In terms of professional work, forensic audit is the most expensive due to its complex and investigative nature.